Banking refugees in Uganda

Just outside Kiryandongo Refugee Settlement in Uganda lies Bweyale market. Under a canopy of corrugated iron and tarpaulin, women sit at stalls set in neat rows selling fruit, vegetables and grains. To one side of the market is a row of shops bursting with colour. Clothing, handbags and other textiles spill from the shelves onto tables and the shop floor.

One of the shops is owned by Monica Matiop, a refugee who has lived in Uganda since 2013. She and her five children fled South Sudan soon after civil war broke out when the president, Salva Kiir, accused his deputy, Reik Machar, of attempting a coup.

Sub-Saharan Africa hosts more than a quarter of the world’s refugee population – 6.6 million, according to the United Nations High Commissioner for Refugees (UNHCR). Of these, 2.3 million come from South Sudan.

Uganda is home to the third-largest refugee population globally, after Bangladesh and Turkey, housing 1.2 million refugees. Around 808,000 refugees in Uganda come from South Sudan and that number is due to rise as the war-torn country continues in conflict.

Monica sits behind an old Singer sewing machine as she recalls how she made the journey from South Sudan to Uganda. She speaks in her mother tongue, Dinka. Her son, Joseph and his two friends, Given and Chanwat, are Euromoney’s guides for the day. They translate.

“I had a shop in [South Sudan’s capital] Juba, but it was looted before we were able to collect our things and escape,” she explains. “When I arrived in Uganda, all I had was one sewing machine. I had to build my business from scratch.”

Monica sells handmade clothes, cushion covers and other bespoke items from her shop in Bweyale. After making some money, she has been able to move out of the refugee settlement and into a rented apartment close to the market with her children.

There are now four sewing machines in her shop. Monica has a few interns that she works with, other refugees from South Sudan that have made Uganda their home. She also trains a group of widows who are looking to develop some sewing skills and make some money for themselves.

“I know what it is like to have nothing, so I try to help as many people as I can,” she says.

Bags with the South Sudanese and Ugandan flag emblazoned on them sit on a shelf at the back of the shop. She glances up at them as she speaks about her work.

“Business is unpredictable,” she says. “I usually take a deposit for a customer who would like me to make something for them. I design things as they describe what they want to me, and once it’s finished, they come back, pick up the piece and pay the balance.

“But there have been times that I have finished an item and the customer just doesn’t come back. Then I am left with something that no one else wants, something I have spent a lot of time working on and I don’t get the money for it.”

Because of the nature of her business, Monica has found it difficult to borrow money and grow. While she has some assets, they aren’t enough for a bank to extend credit, while she is reluctant to go to friends and family to borrow money.

However, she has managed – with great difficulty – to open a bank account at Kenya Commercial Bank (KCB). After submitting numerous documents and making multiple visits to a branch, her account was finally opened – two months after she began the process.

“At least my money is safer there than stored in my home,” she says.

Uganda is one of the world’s most welcoming countries for refugees. Following the implementation of the Refugee Act in 2006, those with refugee status in Uganda are given land by the government to cultivate or build on, are free to move and settle where they wish, seek employment and access public services.

There are 28 refugee settlements across the country.

“They are settlements and not camps,” says Patricia Otiato-Zang Owono, head of the field office for the UNHCR at Kiryandongo, “precisely because refugees do settle here and are actively encouraged to integrate with their host communities.”

Kiryandongo in the northwest of the country is considered the model settlement.

“We have had delegations from Ethiopia and Kenya visit Kiryandongo refugee settlement to see what it might look like if they were to introduce similar policies,” says Owono. “Things run pretty smoothly here.”

There are a few bustling ‘high streets’ in the settlement where people can add credit to their mobile phones and buy food, cleaning products and clothes. The refugees, who are free to travel, often make their way to Bweyale for larger-ticket items in the market.

There are churches, community centres and schools dotted around the settlement. With help from some aid organizations – one of the main ones in Kiryandongo is the Whitaker Peace and Development Initiative (WPDI) run by actor Forest Whitaker – there are a number of scholarships available to the thousands of children that live in the area, while the community centres offer free business and IT training sessions throughout the week.

Refugees do, of course, have access to aid. The World Food Programme (WFP) has a facility there, where those eligible collect their weekly allowance in cash or in a food bundle. The UNHCR has an office in a small compound at the settlement, where much of the main administration work takes place.

Kiryandongo looks and feels like one of the host communities nearby. Economically, they are similar. Research by the UNHCR and the United Nations Capital Development Fund (UNCDF) published in June last year shows that refugees and asylum seekers across Uganda make 45% of their income through odd jobs and 23% through agriculture. For the community in general, the figures are similar, at 49% and 36% respectively.

Some research illustrates how refugees can boost the economy. A study by the International Food Policy and Research Institute showed that in two of Uganda’s refugee settlements, where refugees are given cash or food aid from the WFP, there is an income spill over of up to $870 a year.

The conclusion was that aid supports economic activity as opposed to making refugees reliant on it, especially in Uganda where refuges are given a lot more freedom.

“Refugees and asylum seekers are in very different stages compared with those in their host communities,” says Marion Kimani, forcibly displaced people manager at Financial Sector Deepening Africa (FSDA) – an organization funded by aid from the UK government to reduce poverty through financial sector development.

“But what we do know is that over time, refugees can own and run their own businesses, purchase goods and services, and access and use a variety of financial services, just like those in host communities. Refugees will eventually become a reasonably large, entrepreneurial and untapped group of customers.” 

More importantly, however, they are becoming a central part of Uganda’s demographic landscape. “The case for banking them is strong,” she says.

Refugees and Ugandan nationals have a lot in common – in terms of economic activity at least. But one area where the difference is stark is remittances. According to research by the UNHCR and UNCDF, remittances on average account for 15% of a refugee’s annual income. For a Ugandan national at home, it is around 2%.

In total, Uganda receives more than $1 billion in remittances every year, and almost 50% of this comes from other African countries. But it comes at a price; transfer fees can be as much as 29% of the total transaction value in Africa via some banks. In fact, Africa is the most expensive place to send and receive money in the world.

The emergence of digital and mobile money providers has brought down the cost greatly, however. Wave is one of the newest and cheapest money transfer companies in Africa. It makes money on the exchange rate as opposed to any additional fees. But so far, Wave is only present in five countries across the continent.

“Say you are sending money using Western Union from the UK to a Kenya M-Pesa account, this is pretty straight forward because the infrastructure in Kenya supports these types of transactions,” says Hikmet Ersek, chief executive of Western Union.

M-Pesa has been transformative for Kenya and east Africa. Mobile money is now a mainstay of the African banking landscape – more so than in many more-developed economies. In many parts of Africa, mobile money has moved from purely being a means for deposits and withdrawals to becoming a portal to access overdrafts and loans.

“But what happens in a refugee settlement when new arrivals don’t have a mobile phone or any official forms of ID to open up a bank account? What happens when there are no internet connections, mobile phone towers or payments infrastructure? In these cases, cash is key,” says Ersek.

When crises hit, some remittance companies lower or waive transfer fees completely, taking some of the financial pressure of those in the greatest need.

“We are supportive in these stages because we do hope that over time, they will become long-term customers,” says Ersek.

Western Union tracked payment patterns following the Syrian refugee crisis, which has led to around six million people fleeing the country and another six million being internally displaced. During the crisis money flowed into Turkey, the Balkans and the rest of Europe – along the same path that refugees and asylum seekers were taking.

In Uganda, Western Union has found that most remittances come from the USA, India, UAE, UK, Kenya and Tanzania.

“Family members travel to find work and send money home to support their families,” says Ersek. “As we saw these channels grow, we started to see how we can deepen financial flows between these countries.”

In Uganda, Western Union works with 14 other banks and agents across 645 locations.

According to the International Fund for Agricultural Development, in 2017 200 million migrants sent $481 billion to remittance-reliant countries. Of this, $466 billion went to developing countries.

Remittances are mainly used for food, housing, education and health. And after this, over $100 billion, remains – money that can be used to rent or buy homes, build business, support families or be invested elsewhere. This creates jobs and has the power to transform economies.

Where people or countries are excluded from formal banking systems, cash remittances are a lifeline. Aid and remittances are the first steps to building financial independence; the next is formal banking.

Many of the people that Euromoney spoke to at Kiryandongo Refugee Settlement had been there for some time – 20 or 25 years in some cases. Refugees from South Sudan, the Democratic Republic of Congo, Kenya and Rwanda have made Uganda their home.

“I go back to South Sudan every now and again – when it is safe,” says Given Wilson, a youth leader in Kiryandongo. “But I think I’ll stay in Uganda for the long term.”

“I don’t even want to tell you my name,” says one woman in the settlement. “There are some dangerous people in Kenya looking for my family, so we will never be able to go back.”

Despite the economic benefits that refugees bring and the long-term status they are granted in Uganda as part of the Refugee Act, banks still consider refugees as high risk.

“At the end of the day, refugees want to go home,” says one banker that Euromoney speaks to in Kampala. “They are a flight risk – much more so than a low-income local Ugandan, so we have been reluctant to bank them in the past.”

In response to this, local financial sector agencies and larger African organizations in countries such as Kenya, Rwanda and Uganda have collected data to illustrate the financial strength of refugees.

“We spoke the language of the financial service providers,” says Peter Kawumi manager, competitive strategies at Financial Sector Deepening Uganda (FSDU). “We didn’t talk about mosquito nets, medication or education levels – we talked purely about the financial opportunities that these refugees presented and how they were likely here for the long term. Their ears pricked up.”

What followed were a series of lectures, training events and visits to various settlements to bring the facts home. On the ground, bankers came into contact with boda boda (motor cycle taxi) drivers working in cooperatives, they saw thriving barber shops and salons owned and managed by refugees, small restaurants, street vendors selling mobile money credit, grocery stores and women, such as Monica, working hard throughout the settlement and in the outskirts.

“They were gob-smacked by what they saw – the stacks of cash that some of these refugees had in boxes in their homes or stuffed in tins in their kitchen – sometimes the equivalent of thousands of dollars,” says Kawumi.

Their interest piqued, a series of bids by banks and other financial institutions to offer financial products specifically designed for refugees followed, explains Kawumi.

“They were all competitive bids, with banks looking to tap into the agricultural value chains, provide microfinance loans and more – all tailored to refugee customers,” he says. “Some of these initiatives have already launched, but we are still in the process of rolling these projects out.”

The FSDA and its national counterparts, such as the FSDU, are still involved in building the necessary infrastructure and providing financial incentives to get more institutions on board.

“NGOs, aid agencies and the government help us recoup our costs because otherwise this wouldn’t be a viable business for us,” says Steven Mukweli, managing director of Post Bank, a government-owned bank in Uganda.

“But we look at this another way: if we can bank these refugees in the first instance and if they become economically active and secure as a result, we can then provide them with more of our products, which will hopefully make us money in the long term,” he says.

In 2007, Post Bank became the first bank in Uganda to set up mobile banking vehicles with support from the Ugandan department for international development. Two vehicles travelled six days a week to rural destinations and refugee settlements to provide access to certain banking products.

Today Post Bank has 15 vehicles in operation, allowing customers to make deposits, withdraw money and apply for loans – “Anything you can do in a physical branch,” says Mukweli.

Local agencies have also been set up, he says. Rather than build costly physical branches, some banks have approached local businesses and asked them to receive deposits and distribute cash on a bank’s behalf.

“We can’t have branches everywhere,” says Anthony Kituuka, an executive director at Equity Bank based in Uganda.

“And it can be hard to build in settlements where, despite their development, they are places that have few roads, power generation is unreliable and sometimes there is no running water,” he says. “But because there are usually general stores or something similar in these settlements, we believe that they have the capacity to act on behalf of the bank and receive deposits and make payments or disbursements.”

Using agents, deposits and withdrawals are tracked and excess liquidity can be used by the agents themselves.

“If there is too much money in the system – when deposits exceed withdrawals – we will send someone in to collect the cash,” says Kituuka. “They are already engaged in commercial activity, so it’s the best way to create financial inclusion.”

This is something that has also been rolled out closer to some of Uganda’s larger cities.

“It’s funny, because sometimes we get complaints from customers – people that used to travel for miles and miles to a local branch but can now access many of these services closer to home,” explains Mukweli.

“This is because they aren’t happy with the customer service they get. Trying to explain to them that these agents haven’t been trained to work in a bank for our bank can be quite difficult.”

Some banks are rolling out point-of-sale (PoS) systems with their agents to make receiving deposits and accessing money easier.

“We are looking at ways in which refugees can access and make and receive cash payments and access other non-cash interventions – PoS systems can help with this,” says Kituuka.

“But this is expensive: $500 each plus the cost of two mobile phone lines – one is needed as a backup. We’ve invested around $4 million in PoS and other enrolment and financial inclusion infrastructure in refugee settlements in the last two years alongside some training. We are looking for more partners to help us bring down these costs.”

These PoS systems are ground-breaking for refugees because the entire enrolment process can now be carried out using one, instead of having to travel miles to the nearest branch. The initial paperwork is still required, but following this, users can access their accounts, make payments and withdraw cash using a debit card and their fingerprint.

Equity Bank has been working in the Imvepi Refugee Settlement in the northwest, close to the border with South Sudan, piloting this type of enrolment. Individual refugee accounts can be made up of multiple wallets – one for personal savings and income and others that can be used by donor agencies to deposit aid directly into their account.

“So instead of getting a food package or cash from the WFP, for instance, users can get their aid money deposited straight into their accounts and access the cash or non-cash intervention at the bank agent, who is usually the local store or school or restaurant,” says Kituuka. Limits to how this money is spent can be applied to the card if needed.

“Biometrics has been key to this initiative,” says Kituuka. “Donor agencies always have concerns regarding leakages and the loss of donor funding when aid is given in cash or items, but if aid can be deposited directly into a bank account and refugees can only access these accounts using their fingerprints, leakages can be limited.”

Mobile bank branches, mobile money, PoS and biometrics are found in some of the most developed cities across the world. The fact that Uganda is looking at ways to implement this infrastructure to bank its refugees, shows a commitment to its refugee population seldom seen elsewhere.

“The idea that Uganda’s refugee settlements could become something akin to a smart city, where people use contactless cards to make purchases, send money via their mobile phones and access aid using their fingerprint. It’s quite futuristic,” says Kawumi.

Understanding the spending habits of refugees will help banks and other financial institutions create other banking products to better suit their needs.

“What we see at the moment is that while refugees do open bank accounts, there isn’t much stickiness – much of the money is withdrawn from the banks account and spent in cash,” says Kawumi.

“If we create a situation where payments can be tracked digitally, firstly more money will probably stay within accounts, but we will also be able to look into this data and build a picture of how refugees save and spend money. In this way, more relevant financial products and services can be designed for this still largely underserved community segment.”

However, until these ‘smart cities’ are rolled out, a lack of credit history and collateral combined with the continued risk perception around refugees, will limit banks from extending credit.

It is a similar story for Ugandans in general – only 4% of the adult population in Uganda have accessed credit from the banking sector.

Some banks are working on getting around these issues. For instance, Post Bank supports its depositors by providing small loans in order to formalize title deeds for land and other assets, which refugees may have misplaced or perhaps not understood the importance of.

It’s an odd concept – a loan to support the application for another loan – but it is something the banks feel comfortable with.

In the meantime, refugees in Ugandan settlements have come up with their own solutions, with support from NGOs. The main one is that of the village loans and savings associations (VLSAs).

In Uganda’s refugee camps, women are usually the heads of families and have financial responsibility; they band together in groups of 10 to 20, save money together each month and lend to members as and when needed. Many of the women also club together to open their own businesses to increase group savings.

In Kiryandongo, one women’s group, called Mone-rac, keeps all of its savings in a bright blue box. There are three padlocks around the edges binding the box shut. The three keys are held by different women in the group.

Another VLSA, God is Good Women’s Group, has started depositing money at Post Bank, which has a branch close to the camp. Three of the women in the group – Grace, Jen and Mary – meet Euromoney to discuss how their business works. Many of the other women have gone to receive their weekly food packages from the WFP.

The women gathered near their homes in a small residential area just off the main road and close to the UNHCR compound. The houses have been built around a central yard where many of the women gather to chat or make crafts they sell in the market.

Mary has been in the settlement for 28 years, Jen for 11 and Grace for five. Mary and Grace are South Sudanese and Jen is Kenyan. All of the women have worked in the settlement and beyond, farming and collecting fire wood to make some extra money. Then in 2017, with support from the WPDI, they received some training and a small grant of USh3 million ($800) to start their own business.

“The training changed my life,” says Mary. “I was finally able to start making more money and make a reliable income.”

Grace says: “We started by buying grain from the local market and selling it at a higher price. But we found that sometimes the grain would get mouldy and wet and we would be unable to sell it. So we have moved on. We have bought six piglets from outside the settlement and we plan on growing them and selling them on when they are much bigger.”

The women buy piglets for USh200,000 and plan to sell them to buyers from Kampala after six months for USh1.2 million.

Each month they deposit their earnings at the nearest Post Bank. The plan is eventually to ask for a bank loan, but they realize that they need more earnings stability, records and formal collateral. The women keep all of their deposit slips neatly in a plastic folder and show them to Euromoney proudly when discussing their business.

“It can be very hard to get everything in order for us to get a bank loan – and it can be expensive,” says Jen. “Until then, we will rely on our group to grow our business,”

There lies the tension. No formal bank account is required for a VLSA, and accessing a loan comes down to the strength of the community. Eventually, bringing refugees into the formal banking sector will be a boon to banks and financial institutions in Uganda. Until then, refugees will continue to innovate for themselves.